Chicago Relocation

Real Estate and IRA

July 9, 2013

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John D’Ambrogio

By: Daniel Hanlon Real Estate Relationship Manager at Midland IRA

Since the creation of IRAs in 1974, account holders reserve freedom to invest their retirement accounts in practically anything, including real estate. While most have their IRAs invested into bank products and the public market, many are finding great returns in real estate.

There are some key points to note when buying real estate within an IRA account.

  • Title of the Real Estate – The IRA will be the rightful owner of the property, or portion of which it owns. The IRA Funds never leave the IRA, and the real estate purchase occurs within the IRA account. You are not borrowing money from the IRA, rather you are using the funds inside the account to purchase an asset, just as you would a stock.
  • Disqualified Persons – The main rule with IRAs is who they can transact with. In the case of real estate, these are the parties from which you cannot buy, sell, lease, or exchange with. As an IRA holder, these parties include you, your spouse, your lineal ascendants (parents), your lineal descendants (kids) as well as any entity these parties own 50% or more of. In other words, the property has to be purchased with the intent of investment.
  • Real Estate Income and Expenses – Since the IRA owns the real estate, it is due any proceeds and liable for any expenses related to the property. Typical costs may include: improvements or construction, assessments, property taxes, and legal fees. The income may include proceeds from the sale or a tenant paying rent. As with all IRAs, these gains are tax deferred to the account holder and may be tax free if the account is Roth.
  • 3 Ways to Purchase – There are 3 ways to purchase real estate in an IRA.
    1. The first is with cash from the IRA. This option is simple and requires the full amount be paid by the IRA.
    2. Second, the IRA can become a partner with other parties, including disqualified parties, on a transaction. This may happen as either an LLC or Tenants in Common. The income and expenses would then be split depending on the percentage of ownership.
    3. Third, the IRA accounts can obtain mortgages. The mortgage must be non-recourse, in which the IRA holder has not signed a personal guarantee. Banks that offer this product typically only do so on income producing properties and will require 40% down.

IRAs can be a great source of funds while you look for your next investment deal. These accounts require a third party administrator to report to the IRS as most brokerage houses will not allow their account holders to invest in real estate. Midland IRA, based in Chicago, charges an annual fee of around $400 for this required service. Not only can these companies hold real estate, but they can also hold common investments like promissory notes, tax liens, LLC interests, mortgages and precious metals in IRAs.


Dan Hanlon is the Real Estate Relationship Manager at Midland IRA. He handles all of Midland IRA’s new accounts which plan on investing into real estate. He can be reached at for any questions concerning real estate investing inside of your IRA.